Growing Demand for ESG Information and Standards: Understanding Corporate Opportunities as Well as Risks

For decades if not centuries, information about corporate governance and the environmental and social effects of corporate activity have arguably played an important role in investors' decision-making. But today more than ever, investors are using such information less as a screen to "disinvest" in companies whose activities are viewed as anti-social or unethical than as a way of anticipating changes in corporate performance and value, including those resulting from new growth opportunities as well as risk exposures arising from ESG issues. With numerous studies having established a positive relationship between ESG information and corporate operating performance and market values, there is growing demand by investors for effective disclosure of this information. In response to this demand, a number of organizations, including the Sustainability Accounting Standards Board (SASB), the CDP (formerly the Carbon Disclosure Project), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), CERES, and the UN Principles for Responsible Investment (UNPRI), have been established to improve the usefulness of ESG disclosures. SASB in particular has made considerable progress in achieving its mission of establishing industry-specific standards for disclosure of material ESG information in corporate 10-K and 20-F filings. Using a selection of SASB's standards for the Processed Foods industry, the author shows how standardized ESG disclo-sure can contribute to investors' analysis of the risks, opportunities, and general business environments in which corporations operate. The Processed Foods industry is of special interest because of its position at the center of two global megatrends. Confronted with growing concern over the water-food-energy nexus and increasing awareness of diet-related non-communicable diseases, the industry faces two major sources of risk-and opportunity. As examples of the latter, the author cites a recent call by Camp-bell's Soup with investors noting its sales growth of organic products of 9% during the past year-as well as a statement by General Mills in its 2015 Global Responsibility report citing its development of more than 300 certified organic products.